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Single Family Housing Guaranteed Loan Program

Lender TrainingJanuary 7, 2016

Presented by: Jaci Betcher

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SFHGLP Goals• The SFHGLP is designed to provide low- and

moderate-income households the opportunity to own adequate, modest, decent, safe, and sanitary dwellings and related facilities for their own residential use in rural areas.

• The program provides loan guarantees to an approved lender for loans made to eligible applicants.

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Chapters 1-4: Overview; Lender Approval;

Lender ResponsibilitiesChapters 4-16: Loan Processing; Underwriting; Submission & ClosingChapters 17-20: Servicing; Loss Claims, etc.Sections on: Acronyms; GlossaryAppendix 1: 7CFR part 3555 (Code of Federal Regulation)

Appendix 2-10: Forms; Income Limits; EDI , etc.

3555 HB

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Being Familiar With Program Regulations & Having Good File Documentation is SUPER Important!

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Please take a moment to review your RD loan applications before submitting. Here are some of the most common application problems we encounter…

Collection accounts with a $1.00 payment amount are not acceptable / when no repayment plan is scheduled.

  Confirm data integrity.  Everything input in GUS should match the file

documentation. Data must be complete and consistent across all verification documents such as the appraisal, the verification of employment, Underwriter’s income worksheets , etc.  Data integrity is a critical element. 

  Student loan debts that do not reflect the appropriate payment per HB 11.2 B,

lender must use the higher of 1% of the outstanding balance or payment reflected on credit report.

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The only exception is student loans currently in repayment and documented to be under a fixed repayment plan for the life of the loan. (e.g. letter from a loan servicer, online account verifications), The credit report alone is not acceptable documentation. 

Questions in the details of transaction section of application are incorrectly answered.

  Missing or incomplete two-year employment history.

  GUS findings report shows the borrower is associated with other submissions

in GUS and an explanation regarding the reason for multiple applications is not provided.

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Credit Report does not reflect required trade line history to validate the credit score per HB 10.5 

GUS Underwriting Findings Report shows file was randomly selected for full doc review but full documents were not uploaded into GUS. 

If your file contains a special situation, please remember to include the appropriate documentation.  This will help us by saving time in processing your request for Conditional Commitment.

  

Please help us serve you better! 

 

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•Tools to Make Sure your Application is Complete Tools have been developed to help you assemble and submit a

complete package.  Tools are available as fillable documents on USDA LINC under the heading “Loan Origination” at the following weblink:• https://

usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do

• Available tools include:o Lender’s Origination Stacking Order Checklisto Lender’s Loan Closing Stacking Order Checklisto Make sure to submit only those documents noted and those needed for

special situations. Disclosure forms, title reports, and other lender docs are not required by RD and slow down the process.

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CONTENTS OF LOAN APPLICATION PACKAGE – GUS ACCEPT

* Form RD 3555-21, “Request for Single Family Housing Loan Guarantee” Note: Must be completed and executed by all applicants and lender.

* Income Calculation: Worksheet For Calculating Income.

* Final GUS Underwriting and Findings Analysis.

* FEMA Form 086-0-32, “Standard Flood Determination Form

* Uniform Residential Appraisal Report (URAR) Note: 1004 MC must be part of report.

* Evidence of qualified alien (If the applicant is not a US citizen).

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CONTENTS OF LOAN APPLICATION PACKAGE- MANUAL

* Form RD 3555-21, “RSFHLG” executed by all applicants and lender.

* Income Calculation: Worksheet For Calculating Income.

* Final GUS Underwriting and Findings Analysis. * Underwriting Analysis, confirmed and executed by Underwriter

(FNMA 1008/FHLMC 1077 or similar)

* Uniform Residential Loan Application (URLA – FNMA 1003/FHLMC 65)

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* Income Verification Documentation: For all household members -Verification of Employment (VOE) + (1) earning statement

-OR verbal VOE + (2) earning statements (30 days) + W-2’s (2 years)

-OR computer generated verification + W-2’s (2 years) + verbal VOE

-Self-Employment: income tax returns/ all schedules (2 years) + profit / loss, balance and income/expense statements.

-Child support, pensions, disability, Social Security, retirement annuity award(s)

* IRS 4506-T tax transcripts

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* Asset Verification Documentation: For all household members. Verification of Deposit, bank statements, gift letter etc.

* Credit Report, non-Traditional Report and all credit supplements, as applicable.

* FEMA Form 086-0-32, “Standard Flood Determination Form

* Sales Contract, (all pages and amendments)

* Uniform Residential Appraisal Report (URAR) 1004 MC must be part of report.

* Evidence of qualified alien (If the applicant is not a US citizen).

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If the Agency determines that a Lender did not originate a loan in accordance with the requirements of 7 CFR 3555 and this Handbook and the Agency pays a loss claim under the

loan note guarantee as a result of the originating Lender’s nonconforming action or failure to act, the Agency may revoke the originating Lender’s eligibility status in accordance

with § 3555.52 Chapter 3 of this Handbook and may also require the originating Lender to indemnify the Agency for the loss.

Loss within 24 months Unsupported Data or Omitted InformationFailure to Verify/Analyze IncomeFailure to Address Property DeficienciesAppraiser – Not Licensed or Certified

CH 4: Lender Responsibilities[7CFR 4555.51]

**INDEMNIFICATION**

Rural DevelopmentCH 5: Origination & Underwriting ReviewIncome Types

ADJUSTED ANNUAL INCOME: represents the combined HH income minus qualified HH deductions. **The adjusted annual income may not exceed the program’s income limits.

REPAYMENT INCOME: represents stable & dependable income of parties to the note used to repay the loan.

Briefly…

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Attached to 3555-21: Income worksheet to

help lenders with these calculations.

Make sure you SIGN on page 5

(along with title, lender, date, tax ID#. This certifies YOU completed these calculations)

Submitted with package to RD for review.

SHOULD MATCH UP WITH WHAT YOU HAVE IN GUS!

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Form RD 3555-21 “Request for SFH Loan Guarantee”

Requires BOTH the Lender and

the Applicant to CERTIFY:

5.2 Preliminary Determination of Applicant EligibilityConventional Credit {also in 8.2(B)}

OTHER CREDIT

The certification can be made if the applicant does NOT meet the requirements to obtain conventional credit .

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1 - Have non-retirement liquid asset of 20% down? +

2 - Can pay all closing costs?

3 - Ratios no more than 28% PITI /36% TD?

4 - Have qualifying credit? Qualifying credit = at least 2 credit bureau lines open & paid for at least

24- months (including): (A) Not currently 30 days or more past due on any line; and

(B) Had not been 60 days or more past due in past 24 mo.; and (C) No foreclosure or bankruptcy past 36 month period.

5 – Can qualify for conventional mortgage for 30 year fixed rate without private mortgage insurance (PMI)?

IF the applicant meets the CUMULATIVE criteria as defined above; the applicant is NOT ELIGIBLE for GRH Loan.

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GUS is a TOOL that helps evaluate the credit risk of the loan request. *It compliments, but DOES NOT replace the judgment of experienced underwriters.

*GUS is NOT designed to evaluate the dependability of an applicant’s repayment income. Remains the underwriter’s responsibility to determine prior to final submission.

5.3 Utilizing GUS [7CFR 3555.107(3)(b)]

Lenders are reminded that

data entered into GUS MUST

coincide with permanent case

file. DATA INTEGRITY

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See Handout forALL Required Downgrades

Rural Development5.3 (E) Cash Reserves & GUSCash reserves after closing are NOT required, but ARE considered in the risk assessment by GUS.

Assets such as 40l (k)s, IRAs, etc. MAY be included in the underwriting analysis up to 60% of the vested value. Funds borrowed against these accounts MAY be used for loan closing, but are NOT to be considered

as cash reserves.

Cash reserves are used for the purpose of qualifying the applicant for a loan.

When disclosing the assets of the borrower on the “Assets and Liabilities” page of GUS, lenders have the responsibility to determine if the asset is liquid or readily converted to cash &

can be done so without retirement or job separation.

Gift funds from any source: NOT included in the cash reserves calculation in GUS.

It remains the lender’s responsibility to verify and document that the borrower has sufficient funds to close.

Documentation will be retained in the lender’s permanent case file.

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D. Refinance: 1 - Construction Financing:Refinancing is allowed for “take out” purposes when financing to construct a new dwelling, or to improve an existing dwelling (in conjunction with a purchase). The fee structure for this type will be considered a purchase loan. Considered a 2 closing transaction.

First transaction = obtain interim construction financing. Second closing = obtains permanent financing when

completed. Construction period is limited to 12-month period.

(12-month period must have occurred directly prior to permanent financing).

New construction documentation (certified plans and specifications, inspections

and warranty, etc.) applies. The Loan Note Guarantee will be issued on the permanent

financing, once construction is complete.

CH 6: LOAN PURPOSES 7CFR 3555.101

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D. Refinance: 2- Site Without a Dwelling:In the case of loans for a building site without a dwelling,

a refinance is permitted if:

The debt to be refinanced was incurred for the sole purpose of purchasing the site;

The applicant is unable to acquire adequate housing without a refinance;

An appropriate dwelling will be constructed on the site prior to issuance of LNG; and

The lender is responsible for assuring that all costs involved in the construction financing represent an eligible loan purpose.

(12 mo. period, new constructions docs. 2 closings,etc)

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D. Refinance: 3 - Existing GRH Loans: (See Attachment 6-A – EXCELLENT CHART!)

The intent is to give existing borrowers with satisfactory payment histories the opportunity to benefit from a lower interest rate & increase their ability to be successful homeowners.

The interest rate of the new loan to be financed must be 100 basis points below the rate of the existing loan.

Applicants must meet all existing

eligibility requirements. 2 Types…

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NON-Streamlined Refinance:

Requires an appraisal.

May include: Principal & Accrued Interest of existing loan, Closing costs, Lender fees & Up Front Guarantee fee

Amount to the extent sufficient equity in the property exists, as determined by appraisal. The appraised value may be exceeded by the 2.75% Up Front Guarantee fee.

The Guaranteed Underwriting System (GUS) may be utilized when requesting a non-streamlined refinance.

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Streamlined Refinance:

No new appraisal. May NOT exceed the original loan amount (Max Loan Amt).All other costs, documentation & underwriting requirements remain

consistent with a purchase guarantee. Refinance balance of existing GRH loan. Balance =: Outstanding principal balance, Current interest charges due Reasonable & customary fee for reconveyance Any amount of up front funding fee to be financed into the loan. (Delinquent interest, closing costs or lender fees may not be financed into the new loan).

GUS may be utilized when requesting a streamlined refinance.

Not available for 502 Direct loans that have received subsidy during the term of the original loan.

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Original loan must have closed at least 12 months prior to receipt of request for refinance.

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Existing loan must have been current for the 180-day period prior to request to refinance.

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Additional borrowers may be added to the new GRH loan. Existing borrowers may be deleted but 1 original borrower must remain.

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Permissible for properties in areas that have been determined to be non-rural since the existing loan was made.

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NO "cash out" from the refinance transaction. ******************************

Subordinate financing (such as home equity seconds & down payment assistance“silent” seconds) CANNOT be included in the new loan amount.

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Other Re-Fi Tidbits

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Coming soon to Minnesota!!• The Refinance Pilot Program• Under this refinance program Lenders do not

need to submit:– A new credit report– A new Appraisal report except to calculate subsidy

recapture for refinancing a direct loan if applicable– HUD Handbook minimum property determinations

or any additional property inspections– Debt to income ratio calculations are NOT required

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Refinance Pilot – take 2• What is required:

– Existing loan is Section 502 direct or guaranteed– New interest rate = fixed & minimum 100 basis points

below current interest rate but also can’t exceed RD maximum rate on the day locked

– New term = 30 years– Can add borrowers but can’t remove original (unless

deceased)– Home must remain principal residence– Full income verifications/documentation for all adult

household members – including tax transcripts

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Refinance Pilot – take 3• What can be included in loan amount:

– Principal balance of existing loan– Up front funding fee or a portion of the fee– Accrued interest– Eligible closing costs

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Refinance Pilot – take 4• What can’t be included in loan amount:

– Cash out to the borrower– Subsidy recapture due for direct loan borrowers –

must be paid in full by the borrower or subordinated

Other FYI’s:– Files must be manually underwritten– Applicable annual fee applies

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Refinance Pilot – take 5• Required documentation:

– 3555-21 “Request for Single Family Housing Loan Guarantee”

– Income verifications/documentation– 1003– Evidence of qualified alien status, if applicable– FEMA– Evidence of previous 12 month mortgage payment

history– All additional requirements of 7 CFR Part 3555 and

applicable Administrative Notices continue to apply

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Seller Contributions:

Seller/other interested party contributions limited to 6%

Closing costs &/or prepaid items paid by the lender by premium pricing are not included in the seller contribution limitation.

Fees such as RE commission or other typical fees paid by the seller under local, state law, or local custom are not considered in the max contribution calculation.

6.3 Prohibited Loan Purposes

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Closing Costs:

Closing costs, including lender fees, may not exceed 3% of the total loan amount, unless flexibility is provided through guidance published by the CFPB’s ATR/QM rule.

(The 2.75%GRH fee & annual fee not included).

Note: The “intent” is for lenders to comply with the CFPB’s (Consumer finance Protection Bureau) “Ability to Repay” and “Qualified Mortgage” rule.

Mortgage lenders are subject to this rule but this is not a specific RD regulation.

RD does not regulate what specific fees & costs are allowed under the rule & leave it up to the lenders to ensure they meet the appropriate compliance.

If questions check with your Compliance Officer.

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Interest RateInterest rate cap = On the day locked,

FNMA 30 year, 90 day rate + 1.0% and rounded up to the nearest .25%

Example: FNMA 30 year/90 day rate on10/01/2015 = 03.43776 + 1.0% = 04.43776

rounded up to 4.5%

https://www.efanniemae.com/sf/refmaterials/hrny/index.jsp

CH 7: Loan Terms & Conditions7CFR 3555.104

7.3 (B)Loan Terms

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Document file that rate did not exceed the cap on the date interest rate was locked. 3555-21:

If rate floating when 3555-21 completed, lender document file date rate was locked & confirmation rate did not exceed cap.

RD will request confirmation of the lock date as a condition if the rate remains floating whenCC is issued.

Rate Lock

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Updated Application New updated 3555-21 Updated underwriting Confirmation of date lock (meets max allowable).

Loans underwritten with the assistance of GUS will require a resubmission if the locked interest rate adversely affects the

eligibility of the loan.

Resubmission will be treated as a New Request.

IF Interest Rate INCREASE

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An applicant may retain a home & purchase another under GRH IF: Current dwelling is not financed by GRH or Direct 502 or 504 loan or active 504 grant; Financially qualified to own more than 1 house; Will occupy the home as primary residence throughout the term of the loan. Current home owned no longer adequately meets the applicants’ need.

CH 8: Applicant CharacteristicsA. Owning a Dwelling [7CFR 3555.151]

In all cases, the lender must provide an explanation of burden upon the applicant imposed by the status change (both in the near & longer term) & reasons beyond homeowner convenience, why the purchase of the property must be

completed prior to the sale of the existing property.

Documentation may be requested by RD.

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Applicants retaining their existing dwelling must qualify for all mortgage liability payments.

Newly signed leases cannot be used for repayment (no historical basis). Rents received less than 24 months do not represent a stable income for repayment income and cannot be used when qualifying the loan.

GUS: Don’t populate data fields on the: “REO Property Information” Page with any information regarding rental income

Corresponding mortgage liability associated with retained dwelling MUST be included in the long-term debt liability.

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Repayment Income – Rents received 24 months or greater.

When rental income is stable & dependable, as evidenced & documented by: Most recent 2 years tax returns; and Copy of current written lease executed by the homeowner and the lessee Net rental income CAN be considered for repayment ratios.

IRS Form 1040 Schedule E is required to verify all rental income. Depreciation or depletion shown on Schedule E may be added back to the net income or loss for repayment income. Positive rental income is considered gross income for repayment. Negative income must be treated as a recurring liability.

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Applicants must agree to personally occupy the dwelling as a principal residencethroughout the term of the loan.

Bona fide occupancy in the home as the applicant’sprincipal residence within 60 days after signing the security instruments is required

C. Occupying the Property[7CFR 3555.151(C)]

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Active Duty Military Applicants:

Active duty military applicants may be eligible.

Must occupy the property as principal residence. Will meet occupancy requirements provided:

proof that a discharge will be received within a reasonable period of time

(usually within 1 year) and the serviceperson’s family will continue to occupy the

property if re-assigned prior to discharge.

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Student Applicants:

Due to the probability of relocation after graduation, fulltime students cannot obtain loans

unless they intend to make the home a

permanent residence & there are reasonable prospects of securing employment

in the area after graduation.

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Individuals who have been suspended/debarred from participation in Federal programs are

not eligible for GRH loans. Lender is responsible for screening the applicant & parties to the transaction on the

U.S. General Services Administration’s (GSA) System for Award Management (SAM.gov) website.

Document permanent file with: Date & Screen Print of results & Date on 3555-21. Prior to request for CC & no

greater than 30 days prior to loan closing otherwise the lender will update documentation

= perform another check of SAM.

Rural Development staff is not required to rescreen an applicant upon request of a loan guarantee.

E. Suspension or Debarment[7CFR 3555.151(g)]

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The applicant must be a U.S. citizen, a U.S. non-citizen national, or a qualified alien.

F. Having Acceptable Citizenship/Immigration Status

[7CFR 3555.151(b)]

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If any adult member of the household is not presently employed but there is a recent history of such employment, that person’s income will be considered in annual income.

If the person involved is not presently employed, is not collecting unemployment & does not intend to resume employment in the foreseeable future, the applicant(s) & the person involved must sign a statement to such.

The statement will be filed in the permanent loan file.

CH 9: Income Analysis[7CFR 3555.152]

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Must also verify income from adult members of HH not

party to the note.Require each adult member of HH

complete & execute IRS Form 4506-T

(previous 2 years at time of application)

The information received from IRS is not intended

to document income, but to validate income

documentation provided by HH

Lenders must have the information returned from IRS prior to submission to RD

CH 9: Income AnalysisE. Verification Requirements

[7CFR 3555.152]

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Credit documents, regardless of documentation method cannot be greater than 120 days old at time of loan closing.

• Lenders must obtain a verbal VOE for all salaried applicants within 10 business days prior to note date• Lenders must confirm with 3rd party the existence of a self employed applicants business no more than ‐ 30 calendar days prior to note date

CH 9: 9.3 (E)4: Income Verification

Lenders will verify income for each adult HH member for previous 2 years prior to loan applicationChapter 9, Section 9.3, E

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For Annual income, the assets of all HH members are considered

A. Non-Retirement Assets that Must be Considered:

Cash in savings/checking accounts: Average 2 mo. balance of 2 most recent consecutive monthly bank statements. Earnest money deposit: on sales contract can be considered an asset if the

deposit is not already reflected in a liquid asset account.

*GUS TIP: only enter earnest money one time on either the “Asset & Liabilities” section or “Transaction Details” page

9.4 Calculating Income From Assets[7CFR 3555.10(d)]

Stocks, bonds, savings certificates, certificates of deposit, money market funds, and other investment accounts.

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Sales proceeds of real property sold: Obtain a final HUD-1 or equivalent closing statement to indicate cash sales proceeds realized by the applicant.

*GUS TIP: Enter information regarding the real property sold or pending sale on the “REO Property Information” section. For properties with a disposition of “Pending Sale,” the calculation of “Net Equity” will

automatically populate on the “Assets and Liabilities” applicant page. For properties with a disposition of “Sold” on the “REO Property Information” section,

lender must manually enter the “Net Equity” on the “Asset and Liabilities” application page

Amounts in trust funds that are available to the household. Income from assets disposed of for less than fair market value during the two

years preceding the determination of annual income. Lump-sum receipts, such as inheritances, capital gains, lottery winnings. Personal property held as an investment, such as jewelry, stamps, coins, baseball

card collections or cars

More Assets to Consider:

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B. Assets That are not Considered:

Amounts in retirement & pension plans, individual retirement accounts (IRAs), 401(k) plans, and Keogh accounts. (Retirement savings that are accessible to the applicant can however be considered a compensating factor) Cash value of life insurance policies; Value of necessary items of personal property, such as furniture & automobiles; Assets that are part of any business, trade, or farming operation in which any member of the HH is actively engaged; The value of an irrevocable trust fund, or the value of any trust over which no member of the HH has control; Interests in American Indian restricted land; & Any assets on hand that will be used to purchase the property or pay for closing costs.

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1. Cash Value of $5,000 or Less:

If the cash value of the household’s assets is $5,000 or less, the amount of asset income included in the annual income calculation is the actual income from these assets.

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2. Cash Value Over $5,000:If the cash value of the HH’s total assets is more than $5,000, the amount of asset income included in the annual income calculation = The greater of: (1) the actual income to be derived from the assets; OR (2) an imputed (estimated) income That is calculated by multiplying total cash value of assets by a local- passbook savings rate as determined & documented by lender.

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The anticipated amount of income, and likelihood of its continuance, must be established to determine the applicant’s capacity to repay the

loan. The determination remains the lender’s responsibility.

There is no minimum length of time an applicant must have held a position to

consider employment income as dependable. Lender must verify the applicant’s employment for the most recent 2 full years

& verify that the applicant’s income has been stable. The applicant should not have any gaps in employment of more than a month within the 2 year period prior to making the loan application. Applicants that have not been employed for 12 months with their current

employer or have experienced a significant earnings increase are considered high risk.

9.10 Stable & Dependable Income

• Second jobs, full 2 year history• Unearned income, 3 year continuance• Self employed applicants, 2 year history‐

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Newly Employed: Less than a 2-year employment & income history can be

considered when documentation = applicant was attending school immediately prior to current employment.

School Program/Classes must correlate to job!

For those applicants about to start a new job: Firm offer letter from new employer indicating the job will

begin within 60 days of loan closing

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Re-entering the Workforce:

Applicants who re-enter the workforce after anabsence to care for a family member or minor child,

extended medical illness, or other reasonable circumstances & less than 2-year employment &income history:

May be considered for repayment income if the

applicant has been at the current employer for a minimum of six months and there is

evidence of a previous employment history

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Significant increases or decreases in income level: Experienced a Significant Decrease? Previous higher income cannot be averaged for repayment purposes unless there is documentation of a one-time occurrence (e.g. injury) that prevented working or earning full income for a period of time & proof that the applicant is back to the income amount that they previously earned. Focus on the most recent earnings and income that is likely to be received at the level used for qualifying.

Experienced a Significant Increase?

Proposing to qualify the applicant at the higher amount?

NEED: sufficient documentation to

confirm the increased income is stable and likely to

continue at the level used as part of the written analysis.

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• May be grossed up 25% for repayment• Do not gross up for annual income• No other adjustments are authorized

9.10(A)4: Tax Exempt Income

No More Tax Tables!

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If a credit report indicates other credit inquiries have been made by the applicant in the 90 days prior to the date of the credit report, the lender should determine why theinquiry was made and whether credit was obtained by the applicant. Include monthly payment in TD if applicable.

CH 10: Credit Analysis10.3(B):Credit Report Requirements

[7CFR 3555.151]

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At least one applicant whose income or

assets are used for qualification must have at least 3

historical trades that have a minimum 12 months pay history to establish a credit reputation & validate the credit score. If not, file must be downgraded and non-traditional credit can be used.

10.5 Establishing Credit Reputation

Loans with GUS “Accept” are also

subject to the credit score validation!!

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Non Traditional Credit• 3 or 4 tradelines that are currently active and

open accounts with recent pay histories of a minimum of 12 months

– 3 if one = rent history– 4 if no rent history

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Preferred method = NTC verified by a credit bureau & reported back to the lender as a NTCR in the same manner as

traditional credit references.

If a NTMCR is impractical, or such a service is unavailable, may obtain independent verification of trade references.

10.6 Obtaining Non-TraditionalCredit History

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Acceptable forms of documentation NTMCR include:

Cancelled checks; Third-party verifications; or Non-traditional credit report for the following non-

traditional credit sources that include the creditor’s name, date the account was opened, account balance, monthly payment due, and payment history reported in 0x30, 0x60, 0x90 format.

Subjective statements such as “satisfactory” or “acceptable” are not an acceptable format for repayment history confirmation.

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Rent; Utility records; Insurance (excluding paid through payroll deductions) Child care providers; School tuition; Local stores (department, furniture, specialty stores); Uninsured portions of any medical bills; Internet/cell phone services; Automobile leases; Personal loan from an individual (other than a family member); Documented 12-month history of saving by regular deposits (at least quarterly/non-payroll deducted/no NSF checks reflected), resulting in a reserve equal to 3 months of proposed PITI as a cash reserve post-closing; or Any other reference which gives insight into willingness to make periodic payments

on a regular basis for credit obligations.

NOTE: Court Created Obligations paid (such as child support or alimony) cannot be utilized as trade-line references;

Payments to relatives cannot be utilized.

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Exercise caution when evaluating applicants with NT credit histories. May be considered a higher risk than applicants who have credit scores.

Only 1- 30 day delinquency on any NT line within the last 12 months. 60 and 90 day delinquencies, reports of disconnection notices, or collection accounts/court records (other than medical) filed

in the past 12 months are unacceptable.

Ratios for housing expense and debt-to-income expense should be minimal.

NTCR

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A credit score in its self does not indicate the applicant’s credit reputation is acceptable.

Even when the credit score exceeds the minimum, the lender must determine that each applicant, individually, and all applicants

collectively, have an acceptable credit reputation.

640 or greater meets minimum credit requirement, provided indicators of unacceptable credit are notpresent:• Foreclosure/short sale within 3 years• BK within 3 years• Late mortgage/rent paymentsThis does not establish a minimum fico score!

10.7 A: Acceptable Credit Scores

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Loans with credit scores of 580 or below

should not be approved.

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Exceptions should be made only in the following types of situations:

Temporary Situation: The circumstances that caused the credit problems were temporary in nature, beyond the applicant’s control, & the circumstances have been removed and resolved (12 mo. prior to application). (Ex: include a temp. loss of job, delay or reduction in benefits, illness.)Reduced Housing Expense: The loan will significantly reduce the applicant’s housing expenses, which will result in improved debt repayment ability. (Significant reduction in housing expense = 50% or more.)

No Agency-granted waiver or concurrence is required for credit exceptions.

Applicants must provide supporting documentation that meets these requirements to ensure the

lender’s file is well documented and supported. Lender should document on the underwriter’s analysis

the reasons that an exception is justified.

10.8 Credit Exceptions

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The lender is not authorized to make an exception in the case of an applicantwith a delinquency on a Federal debt, or with an outstanding judgment obtained by the United States in a Federal court (other than the United States Tax Court).

Evidence of payment arrangements is acceptable for IRS Federal tax judgments. Underwriter must determine if the elapsed repayment period

is of appropriate duration. Delinquency during the repayment period = Not Eligible.

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Collection accounts are factored into the credit score. Collection accounts will be considered in the analysis of credit and capacity.

The lender is responsible for determining which collection accounts should be paid in full by the applicant prior to, or at, closing.

*Not a condition of mortgage approval. Whether a collection account represents a greater risk is the lender’s decision, regardless of the credit score.

The lender will document reasons for approving a loan request whencollection accounts remain unpaid.

*GUS TIP: The preferred method to record the lenders analysis/reasons for approving the loan is to document their justification on the credit liability line under “notes” on the “Assets and

Liabilities” page beside each individual collection.

10.9 Collection Accounts:

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1) Determine IF: Total outstanding balance of all collections is equal to or greater than $2,000. 2) Remove all medical collections & charge off accounts

from the total balance.3) If the remaining outstanding balance of collections is

equal or greater than $2,000

Any of the Following Actions Will Apply:

a. Payment in full at or prior to closing.b. Payment arrangements are made with creditors for collections. (A letter from the

creditor or evidence on the credit report is required to validate the payment arrangements. Monthly payment for each collection included in TD ratio.

c. In the absence of a payment arrangement, utilize in the TD ratio a calculated monthly payment. For each collection utilize 5% of the outstanding balance to represent the monthly payment.

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An exception to payment in full of outstanding judgments can be made when the applicant(s) have a payment arrangement with the creditor and have made regular/timely payments for

3 months prior to loan application.

Prepaying scheduled payments as a means of meeting minimum requirements is unacceptable.

Lenders will obtain a copy of the payment agreement & validate payments have beenmade in accordance with the payment agreement.

10.10 Judgments:

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Applicants with credit scores of 680 and above are not subject to verification of rent

or housing history.Loans underwritten with GUS that receive

an “Accept” underwritingrecommendation are not subject to

verification of rent or housing history.If, however, a rental amount is input in GUS, it must be verified. All information in GUS is required

to be verified.

10.13 Rent History

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Revolving Accounts: Min. mo. payment is required for all revolving credit card debts.

Revolving or open-ended accounts are counted as a liability for qualifying purposes even if the account appears likely to be paid off

within 10 months or less. If the credit report shows an outstanding balance, but no specific

minimum monthly payment, the payment will be calculated as the greater of 5% of the balance, or $10.

If current statement reflecting the actual monthly payment, that amount can be used.

Retain documentation in permanent file.Revolving accounts with no outstanding balance do not

require an estimated payment to be included in the debt ratio.

CH 11: Ratio AnalysisB. The Total Debt Ratio

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Previous Mortgage:

Previous mortgage liabilities disposed of through a sale, trade or transfer

without a release of liability will be included in the TD ratio unless evidence the remaining

party has made the payment in the previous 12 months

prior to loan application

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May exceed 29% PITI & 41% TD IF strong compensating factors demonstrate higher repayment ability.

Debt Ratio Waivers – Agency may concur if all of the following conditions are met:1. Either:

a. The PITI > 29%, but < or =32%, accompanied by a TD ratio not exceeding 44% ; ORb. The TD ratio > 41%, but < or =44%, accompanied by a PITI ratio not exceeding 32%;

And:2. Credit score of all applicant(s) is 680 or greater; and3. At least 1 of the acceptable compensating factors listed is identified and supporting documentation provided.

11.3 Debt Ratio Waivers &Compensating Factors

Manual Underwrites

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Acceptable Compensating Factors & Supporting Documentation:

The proposed PITI is equal to or less than the applicant’s current verified housing expense for the 12 month period preceding loan application.

Accumulated savings or cash reserves available post loan closing equal to, or greater than 3 months of PITI payments.

All employed applicants have been continuously employed with their current primary employer for a minimum of 2 years. (N/A for self-employed borrowers)

The debt ratio waiver requirements do not apply to GUS files that receive: “Accept” underwriting recommendation or “Accept” / “Full Doc” submission as part of a quality control msg

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Sites must be modest & developed in accordance with any standards imposed by a

State or local government. Site Size

The site size must be typical for the area.

REMOVED: 30% site value guideline

CH 12: Property & Appraisal12.4 Site Requirements [7CFR 3555.201(b)]

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CH 12: 12.2 Economic LifeRemaining Economic Life

Economic life of property must meet or exceed the term of proposed loan

30 + years remaining

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Income-Producing Buildings The property must not include buildings designed &

to be used principally for income-producing purposes.

For example: barns, silos, greenhouses, or livestock facilities used primarily for income producing agricultural, farming or commercial enterprise are ineligible.

However, barns, silos, livestock facilities or greenhouses no longer in use for a commercial operation, used for storage, & outbuildings such as storage sheds are

permitted if they are not used primarily for income producing agricultural, farming or commercial enterprise.

A qualified property must be predominantly residential in use, character and appearance.

Home-based operations such as childcare, product sales, or craft production that

do not require specific features are not restricted.

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Income-Producing LandThe site must not have income-producing land

that will be used principally for income producing purposes.

Vacant land or properties used primarily for agricultural, farming or commercial enterprise are ineligible. Sites that have income-

producing characteristics (e.g. large tracts of arable land ready for planting) are considered income-producing property.

A qualified property must be predominantly residential in use, character and appearance.

However maintaining a garden for personal use is not in violation of this requirement.

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The appraisal must have been completed within 120 days of loan closing.

REMOVED: New construction appraisals are no longer valid for 180 days.

12.5B: Appraisal Update• 120 days for original report + 120 days for update

(240 days maximum – only 1 update allowed)• No update – 150 days maximum at loan closing (Original 120 day + 30 day extension period but not allowed with an update)

CH 12: Section 2: Appraisals12.5 Residential Appraisal Reports

[7CFR 3555.107(d)]

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REMOVED: Prohibition on in‐

ground pools & deduction of

contributory value of pools

CH 12: Existing & New Dwellings (12.9A)

May approve dwellings with in-ground pools

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1. Remaining work cannot affect habitability, health or safety2. Cost is not greater than 10% of final loan amount3. Escrow account funded to complete work (minimum 100% cost of work)4. Executed contract to complete within 180 days of loan closing

Executed contract is waived (borrower method) if:

i. Cost to complete work is less than 10% of total loan amountii. Escrow amount is less than or equal to $10k, andiii. Lender has determined borrower has skills to complete work

The Agency may issue a Loan Note Guarantee prior to the completion of repairs provided the following conditions are met:

Escrow-Exterior & Interior12.9 Existing & New Dwellings [3555.202 (C)(4)]

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The lender is responsible for monitoring the completion of the work and the release of funds for payment.

Documentation supporting the development work andconfirmation of the completion will be retained in the lenders

permanent mortgage file (check CC for submission requirements).

Funds remaining in the escrow account upon completion of the work will be used

to reduce the unpaid principal balance of the mortgage.QUESTION: Do all remaining escrow funds have to be applied to principal?ANSWER: Yes, that’s the regulation. **Even if Seller Contribution.Remember, lender is getting LNG with 10% cost of work left undone & RD will pay claim on 90%. If do not want funds going back to principal, have option to have repairs completed prior.

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Existing dwellings are eligible with flood insurance.

Flood Insurance must be obtained when any portion of the structure is in a SFHA,

(including decks and carports, etc.)

However, flood insurance is not required for any additional structures that are located on the property

but are detached from the residential structure(such as sheds, garages).

Flood elevation certificate is no longer required!!

Flood Hazard AreasGet quotes for actual

costs. Flood Insurance has really skyrocketed!

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A “single-close “combination construction permanent loan can be offered by lenders with appropriate construction lending experience & adequate controls for interim construction cost disbursements.

Combines the features of a construction loan, which is a short-term interim loan for financing the cost of construction, & traditional long-term permanent residential mortgage.

Provides funds during construction period - converts to a permanent loan upon completion. Lender makes the loan to an eligible applicant. Considered a purchase transaction by the Agency. Closing occurs prior to the start of construction. At closing funds are disbursed to cover the cost of land. Lender responsible for managing the disbursement of loan proceeds to builder/contractor

for LNG may be issued once the interim construction loan is closed without waiting for completion of the subject property.

Attachment 12-C Checklist

12.13 Section 7: Combination ConstructionPermanent Loans [7CFR 355.105]

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An applicant is ineligible if he/she is presently delinquent on any Federal debt or is suspended or debarred, or otherwise excluded from participating in RD programs. The GSA list: www.sam.gov

All other parties to the mortgage transaction can be:Applicant(s) SellerListing or selling real estate agentLoan officer Appraiser Loan processor BuilderUnderwriter

CH 15: 15.2 Lender Responsibility

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RD will accept unless prohibited by law or regulation

• Eligible on documents utilized for loan origination or servicing• Lender must perfect & maintain first lien and enforceable promissory note• Signature must be clear

Use of electronic signatures is voluntary

• Lenders must meet ESIGN Act & applicable federal & state regulations (no script font, photos, or copy and paste of images)• Lender assumes all responsibility for e signatures‐

15.4 Electronic Signatures

Englebert

Humperdink

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If the application is missing information that is needed, the SFHS will contact

the lender (typically by email), with a list of the specific items

that are missing, incomplete, or inadequate.

15.6 (C) Incomplete Applications

The lender must correct the deficiencies within 10 business days

or the application package will be returned to the lender.

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The loan MUST close under the same terms it was underwritten and approved for in the Conditional Commitment

UNLESS the change does not adversely affect loan approval

(i.e. lower loan amount, lower interest rate).

CH 16: Closing the Loan7CFR 3555.107

Increases

in Amount or

Rate after CC?

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Rural Development offers approved lenders the ability to submit guaranteed loan

closing transactions to the Agency via the internet. This method is the preferred

method of requesting a Loan Note Guarantee.

B. Request For Loan Guarantee-Electronic Closing (LLC)

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PHEW!!!!!For Questions contact: Jaci Betcher - jaci.betcher@mn.usda.gov